Over the last couple of years, I’ve been getting increasingly concerned about the future of our city. Leaving aside the rot exposed through the ICAC investigation, I’ve been mostly worried the future of the city from an economic perspective.

Are we going to be a place where our young people can build careers & families with confidence and a sense of optimistic opportunity?

Or are we going to increasingly be a hollowed out city, with a population that in large part commutes to Sydney for work, or lives off Centrelink, or comes here to to retire?

Are we going to be proud and strong, or are we going to be like Tasmania – a small backwater that everyone looks down upon and only survives because they suck in taxes paid by the rest of Australia living in large part off handouts?

My worries about the future of our city have grown even more acute over the last few months.

Our city has operated with a bit of a handicap in all 31 years I’ve lived here – the downsizing at the steelworks and in the broader manufacturing sector has been playing out since the 1970’s. But while we’ve stoically pushed forward over the years, I’m concerned that rather than just the disappointment of unfulfilled potential that we’ve learned to live with, we’re actually facing some very serious challenges that could threaten the viability of our city.

Our Two Fires – Carbon Pricing & Dutch Disease

In the short to medium term, there are two external forces, more than any others, that are affecting Australia’s entire economy.

The first is the transition to a carbon constrained economy, and while there might be debate around the details and timing of a carbon price, I think most people accept that reducing global dependence on carbon (ie, coal) as an energy source is inevitable.

The second, and much more important and threatening issue in my view, is Dutch Disease, the situation where a high currency value because of exports in one part of the economy – in our case, the mining/resources boom centred around WA – makes it almost impossible for exporters in other parts of the economy to compete.

While Carbon Pricing and Dutch Disease are having a negative economic impact in lots of communities around Australia, there are few, if any, that are threatened as much as our city and region.

In a message to all his staff earlier this year, new Nokia CEO Stephen Elop told a story that I think has strong parallels to the situation our city is currently facing:

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform’s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a “burning platform,” and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a “burning platform” caused a radical change in his behaviour.

We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.

I believe our city too is standing on a burning platform.

Examples of our industrial decline

Lets have a look at an example, in the form of Bluescope, the region’s largest employer and also responsible for tens of thousands of related and multiplied jobs.

Bluescipe recorded revenue of $4.75B in their Coated & Industrial Products Division (which is pretty much all of Port Kembla), down over 20% from over $6B in sales two years earlier (2008). And this is just sales – during this period, raw material costs went up, and the Australian dollar increased in value by more than 70% since late 2008. This exchange rate movement – the Dutch Disease in action – has made every person on payroll, every megawatt of electricity and other AUD expenses 72% higher now than their international competitors, assuming no increases in wages, power costs and the like.

Little wonder then that Bluescope experienced a drop in profit of 85% between 2008 and 2010 (and in the GFC and the 2nd half of 2009 they actually made sizable losses). While today’s announcement of an additional $300M in industry assistance for the steel sector (read Bluescope and OneSteel) will make some people in the city feel comfortable (and it isn’t tied to the carbon tax legislation, so the Greens would have to support it – good luck with that), $300M isn’t a lot of money compared to the $1.25B per year in revenue that Port Kembla is down compared to 2008. Even a government, with all the resources of treasury, can’t compete with global market fundamentals – just ask George Soros, the man who broke the Bank of England in September 1992.

 

There have been lots of other examples where trade exposed employers in our region have become extinct. We’ll all remember the closing of the Bonds factories in the area last year, the latest in a long line of shutdowns and mass layoffs which in previous years have included brands like Midford, and even more recently, locally owned Poppets. Unfortunately, the ledger is stacked with much more bad news than good on this score.

When it comes to our traditional economic base, our city has been lurching from one crisis to the next, while the rest of the world passes us by. It doesn’t have to be this way.

Recognition, leadership & vision

Facing up to these challenges requires an honest debate, strong leaders and the willingness for our community to come together, face facts, make some tough decisions and put in place a plan to change our economic base.

So, is there a frank debate about these issues at the moment? Are our leaders – both incumbents as well as aspirants – speaking out, being honest, and putting forward a plan? Let’s have a closer look.

Local Government

Our city is going to the polls in just 7 weeks time. I’ve been following the news as more people throw their hat into the ring, and I’ve been really hoping to hear someone out there talk about the elephant in the room.

But, alas, all I’m seeing is an empty and meaningless debate about which group of candidates is going to have better consultation and more inclusive government than the next.

What of debating the big issues, like the future of our city?

On the whole, the candidates have been silent about this, and those that are making noises about anything of substance are currently running on platforms made of platitudes that few would argue with, but which on their own are utterly meaningless.

Sure, you could argue local government is roads, rates and rubbish. I disagree – a strong Mayor and City Hall can act as a very effective leadership and lobbying force with the levels of government that actually have power, not chains – but that raises the question – where are our State and Federal representatives on this?

State & Federal Government

I’m heartened that the State and Federal members I’ve talked to about our burning platform situation are very aware of the issues. My sense from talking to them is that they see the same bleak future if we keep doing what we’re doing. The problem is, changing the nature of an economy isn’t easy, cheap or quick.

Unfortunately, they’re not out in front on the debate, and while I’m disappointed, I can also understand why.

If I was Sharon Bird, Stephen Jones or Ryan Park, I wouldn’t want to come out and scare the horses unless I had a plan to turn fear into hope. To bring up this issue without knowing you can get the support of your caucus and the treasury to make the investments to do something about it would be what Sir Humphrey would call “courageous”.

Sharon, Stephen and Ryan are worldly and smart; while some of the crazier voices in our public life might suggest fixing the exchange rate, putting up tariffs and other failed policies to provide the perception of short-term relief, our members know that going back to the “good old days” isn’t possible without a flux capacitor and a Delorian.

When it comes to bold initiatives and investing in action to transition our regional economy, our members are also hamstrung, even if they have a plan. Our safe seat status at state and federal levels of government means that our members will always struggle to get attention from the party and concessions from Treasury, and the safe seat status owes a lot of the current economic makeup of the city, which doesn’t help create the motivation for change either.

Starting a debate

Our city has been making a gradual transition over the last few decades, but the size and speed of the threats – the intensity of the fire burning under our platform – is stronger than ever before. The Finance and Insurance sector – thanks to the likes of the IMB, Community Alliance Credit Union (formerly Illawarra Credit Union), Oasis Asset Management (now known as a division of ANZ and known as OnePath) – is now the largest employer in the region, and Greg Binskin and the team at Tourism Wollongong have consistently gotten in front and espoused a vision for a strong tourism sector in the region which they’re making a reality with dogged determination.

But, to be honest, what we’ve really got here is a number of disparate actors working to improve the fortunes of the city through their own actions – what we don’t have is any real leadership, debate of vision for the future of the city, which our community can participate in and get behind.

This is a real shame, and while we continue to be mute and complacent, we ensure that by doing what we’ve always been doing, we’re going to keep getting what we’ve always been getting.

Learning from others – a tale of three cities

We’re not the first community in the world to face serious challenges like this – I’ve researched three examples which we can look at as proxies for our situation, so we can learn from their mistakes and successes. There’s a lot we can take away from the way others have faced and overcome the same adversity and threats we’re facing now. Here’s a little information about these three cities below.

• Sheffield in England suffered for decades as the pain of the loss of their manufacturing and industrial economy in the 1970’s led to widespread unemployment and a contraction in their city and population, and have only just started turning things around.
• Detroit, a cautionary tale, is still suffering and shows no real sign of improvement on the horizon.
• Waterloo in Canada, saw the writing on the wall and transitioned their industry very very successfully before they declined, creating a really smooth transition and a great success story.

Sheffield – an industrial twin

The first proxy city to our own is Sheffield. The home of British Steelmaking, Sheffield saw a 10 fold increase in its population in the 1800’s through the industrial revolution, however when international competition on its inefficient sector took its toll from the 1970’s, Sheffield saw its population decline markedly (down over 7% in the 10 years to 1981, and negative each other post-war decade until the last few years).  Anyone who’s seen The Full Monty, set in Sheffield (1997), will have a feel for the bad times that city has seen.

Sheffield has since invested in developing its higher value business services sector, and while accepting the lower job contribution made by the manufacturing sector compared to days gone by, a focus on technology and real innovation has helped to bring prosperity back to manufacturing in this natural cross-roads in the middle of Britain.

None of it would have been possible without a strong, coordinated plan and commitment of various stakeholders – for more information, have a look at this excellent case study on how Sheffield is becoming a knowledge region. For specifics on how their regional governments are working together with detailed plans, check out the “Moving Forward: the Northern Way” website and plans.

Detroit – a cautionary tale

Detroit. Motown. The City of Detroit, which used to be the 5th largest city in the United States, has now shrunk to be 18th, with a population of around three quarters of a million. Only New Orleans has gone backwards further, and Detroit can’t blame a hurricane for its woes – Detroit’s failings are all man made.

The home of the American automotive industry, Detroit has been in decline since the 1980’s. As the Economist details:

Employment has fallen every year since 2000. Even as the carmakers recover, they will not resume their role as guarantors of middle-class prosperity. State leaders have struggled to respond to structural shifts. Unfortunately, rather than reform a collapsing revenue system, they have passed short-term fixes. Attempts to reinvent Michigan have moved fitfully. Grants for college students did little to encourage them to stay after graduation. Tax credits for green manufacturing industries may create too few jobs at too great a cost, according to Don Grimes, an economist at the University of Michigan.

Detroit is what happens when a city faces a series of structural challenges and threats that are as certain as gravity, and then put their head in the sand. The city levies an additional 2.5% income tax on its citizens – this was probably a good idea when the city was prosperous, but now it is a massive disincentive for anyone to live there, especially given its high levels of crime and general decay. Some statistics show their unemployment rates falling, but the reality is, people are leaving the city and its surrounding counties by the hundreds of thousands. Perhaps there is a future for a smaller Detroit, but $50B in Federal bailouts for the 3 big US auto-makers in the GFC seems like it might not have been the best investment that could have been made.

Another American city that I have done a bit of research on is Pittsburgh, the former home of the American steel industry. Pittsburgh has seen a dramatic downturn in its own steel industry, and while their ability to cultivate a high tech and startup sector looks really promising, it is still in many ways early days – the City is still losing around 10% of its population each decade, and has been since the 1960’s. Hopefully, Pittsburgh can achieve the same sort of success as Waterloo, below.

Waterloo – our Canadian doppelgänger

The town of Waterloo, Ontario, has got to be the closest thing Wollongong has to an international twin.

• Waterloo is around 100KM from the largest city in Canada, Toronto, their equivalent of Sydney. Wollongong is 83KM from Sydney.
• The population of the City of Waterloo is around 100,000 people and the population of the region Waterloo is centred in is around 492,000 people. Wollongong, Shellharbour and Kiama LGAs combined have around 300,000 people, with another 150,000 if you include Wollondilly and the Shoalhaven LGA’s, giving an Illawarra total of 450,000.
• Waterloo has a strong and internationally renowned university, the University of Waterloo, which is actively engaged in their city. In addition to being a significant employer in the city, the University of Wollongong is increasingly taking a leadership role in helping to shape the future of our city (such as through the Innovation Campus).
• Waterloo has historically been an industrial town, with strength in tanning and rubber. In the 1980’s the industry suffered a downturn, related to headwinds in their main downstream market, Detroit, and thousands of jobs were lost. From the 1970’s, the Illawarra region has suffered similar frequent retrenchments and large rounds of layoffs in from industrial sectors.

What sets our two cities apart, however, is what Waterloo did the face of its own structural change. Instead of grinning and bearing its fate, a number of civic leaders got together and decided to try and build a new, emerging industry to take up the slack.

The outcome of this effort, which recognised the opportunities an innovative and engaged University could provide when combined with relatively close proximity to the financial capital of the country, has been nothing short of amazing. The City started focusing on technology, and they managed to grow their industry from a total revenue of C$300M in 1997 to over C$19B (yes, B as in billion!) in 2007. The best known product of Waterloo’s success is undoubtedly Research In Motion, the company behind the successful Blackberry mobile phone.

After spending a week with Tim Ellis, Chief Operating Officer of the Accelerator Centre in Waterloo earlier this year, I’ve gotten a much deeper appreciation of what they’ve been able to do, and I’m firmly of the opinion that we can do something similar here in the Illawarra. The University of Wollongong has signed an MoU with the University of Waterloo – I expect many more beneficial things to come out of these two institutions cooperating.

One part of a vision for our future – creative, high tech & very liveable

I believe our city needs to take strong action to deliberately re-shape our economy if we want to be more than God’s waiting room, a bogan backwater and a place for exhausted commuters to sleep each day.

However, the isn’t a single silver bullet, and there isn’t one industry or sector alone that is going to change everything for us and make for a better, sustainable future.

I do believe, however, that the creative sector, particularly backed by technology, can play a very important part in helping to change the fabric of our city and its economy for the better.

In my recent post on the 5 Pillars of Tech, I reflected on the nature of the IT industry in our city, and put forward a case where a Startup led technology sector could have a massive and positive difference in the future of our city:

A technology Startup is product focused. They’re often developing software, and although hardware is still possibly, it is at least an order of magnitude harder to do, and it requires a lot more capital than you can usually find in Australia. Being software product focused makes you very capital efficient – no need for plant, equipment; just people and ideas and the odd laptop or two.

A technology Startup is globally oriented – they might not be selling internationally, and their first 4 clients might be companies who share the same building as them, but generally speaking, a startup is trying to solve a niche problem in a new way for a global market.

By being product focused, often software-based with a zero marginal cost of production, a technology Startup is also highly scalable. With more than a billion people online now, and the growth in smartphones and their associate app marketplaces, distribution has never been easier or less tied to your geographic location. In this sense, being a city of a quarter of a million, in country with only 22 million (which makes us a flea on the back of a Chihuahua riding on an Frigate – I’ve done the maths, and these are honestly the right ratios) doesn’t have to be a critical disadvantage.

As a foundation investor and mentor in StartMate, and the founder of two technology companies that now employ 16 staff, I’ve seen first hand how powerful and catalytic the Startup sector can be for the wider economy. Also from my 5 Pillars post:

When it comes to the role that Startups can play in contributing to the economy of the region, the best thing about them is that they’re easy to start, they harness the things we have – smart people, lowish costs of living – and their development and cultivation is within our control.

They’re also great job creators – 20 companies with 10 staff creates the same opportunities of one large company imported into the region – and even if these startups fail, the experiences, lessons and skills developed by getting out there and doing it are incredibly valuable, whether the founders choose to do another startup, or join the ranks of the other technology sectors.

I’ve recently come back from spending a month in San Francisco, which for those who don’t know is the “captial” of Silicon Valley. Part of the time I spent there involved talking to investors, and many of them were asking about where we’re based, and whether we’d move the team to Silicon Valley if they invested in us. I told them, no, are you crazy? Why would I do that? They asked for details about what made Wollongong a great place to grow a startup, so I told them the following things:

• Talent – the University of Wollongong produces 1 in 7 technology graduates in Australia. In Silicon Valley right now you can’t hire an engineer for love nor money – I’ve never seen a war for talent like it. Just telling prospective investors the graduate statistic was enough to get them asking how they might be able to look at helping the companies they’ve already invested in – who can’t hire good technology engineers – to come to Wollongong.
• Stability – Wollongong is an absolutely beautiful place to live. Knowledge workers can base themselves anywhere now the world is flat – having a team based in Wollongong is great for the team, and great for the business too. I heard from large multi-national employer in the region that they experience staff turnover of 5%, whereas their Sydney office, which in every other way is identical, faces 50% turnover a year. Even without factoring in soft-costs like the cost to the business of losing all that knowledge each year, the hard recruiting and training costs for this kind of turnover they’re seeing in their Sydney office are crippling, and makes Wollongong a much better place to be.
• Diversity – if the world is flat, it is also now increasingly online. There are billions of internet users, and we’re not far from having more mobile phones than people on the planet. What isn’t changing any time soon though are the needs to speak the language and be connected and comfortable with the culture of your markets, which are increasingly Asian based. Our time zone, our strong cultural diversity and the language skills that that brings us are not insignificant, and I think they’re almost always underrated. My team today includes three people from China, one Canadian, an American, a Kiwi by birth, and doesn’t include the English, Vietnamese, Irish and other cultural heritage we all bring to the table.
• Proximity – we’re an hour from the commercial capital and largest city in Australia. We’re even closer to our main international airport, and then an easy flight to almost anywhere in the world. We’re on the a growth time zone – Asia – for the first time in our country’s history. But we’re still small enough so that more than half of my staff walk to work each day. Less time commuting to work, markets, investors and clients means more time to spend either building a world-class company, or enjoying life with our family and friends.

For these and a litany of other reasons, I think Wollongong stands a great chance of becoming a technology and startup powerhouse, in much the same way that Waterlook in Canada has become a powerhouse on a global stage and reinvented their economy at the same time.

So, how do we make it happen?

Next Steps

The most important next step for all of us is to start to raise the alarm. Unless our city wakes from its slumber to realise the platform it is dozing on is on fire, we’re going to end up like Detroit – so hollowed out, broken and depressed that things will get better only because they really can’t get any worse. If we waken the community now, and start an honest debate about our future, we might be able to pull off a Waterloo; even if we fail, we won’t be any further behind than we are now.

To facilitate this, I’d love to see something similar to Melbourne’s Wheeler Centre here in Wollongong. Imagine something led by the Mercury, which makes use of our newly refurbished Town Hall, to facilitate the debate.

Let’s give our elected representatives some ammunition to take to Canberra and Macquaire St.

Let’s learn from the successes of others. Action, cooperation and agility is much more important than a big overarching plan.

Let’s encourage the University to keep building its relationship with Waterloo so we can benefit from their experience.

Let’s look at ways to supercharge our new and emerging industries. Tourism, financial services, technology, education. We need to focus on the industries that grow the economic base and bring jobs, income and prosperity into the region. Health and Community services, which have grown a lot of the years deserve our appreciation, but they don’t grow the economic base – they exist only if the economic base can be taxed enough to pay for them. When it comes to technology, the closing comments in my 5 Pillars of Tech article provide a bit of a blueprint; I’m sure Greg Binskin can probably provide his own specific advice for the tourism industry.

Whatever we do though, we need to remember, if we want to keep getting what we’ve been getting, we should keep doing what we’ve been doing. We need to do more. We need to do better.

We’ve got so much potential – to rob our children of the opportunity they deserve to have, and consign ourselves to the fate of a slowly decaying industrial town mired in depression, disadvantage and disappointment for merely a lack of action is just not good enough.